Shalby Limited (SHALBY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Shalby's Q4 FY '24 Earnings Conference Call hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Dr. Bino Pathiparampil from Elara Securities. Thank you, and over to you, sir.

Thank you, Steve. A very good evening to all of you on the call. On behalf of Elara Capital, I, Dr. Bino Pathiparampil, welcome you to the management call of Shalby Limited to discuss Q4 and FY '24 earnings and business outlook. We have the top management team of Shalby present in the call. I now hand over to Jigar Todi from the IR team of Shalby for opening remarks and taking it further. Over to you, Jigar.

Thanks, Bino. Good evening, everyone. Our earnings presentation is uploaded on the stock exchange website and our company website, shalby.org. We do hope you have already had the opportunity to go through the presentation. Please note that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. Kindly refer to Slide #43 of the investor presentation for the detailed disclaimer. Now I would like to hand over the call to Chairman, MD, Dr. Vikram Shah for his opening remarks. Thank you, and over to you, sir.

Good evening, friends. Very warm welcome to the earnings call of Shalby Limited. Today, I'm happy to share with you that this has been a landmark year as Shalby, as an institution, has completed 30 years of operation. 30 years ago, our first hospital was created out of vision and relentless determination to provide quality health care. I can still recall the complex hurdles that we faced. The financial struggles, the uncertainties of the clouded path. However, with every challenge, we grew stronger and more resilient. Through sheer perseverance and unwavering dedication, we started [ diverging ] into the opportunities. Today, as I fondly recollect those early days, I'm filled with immense pride. Our commitment to excellence has not only led to best clinical outcomes but has earned the trust and gratitude of our patients. Our growth is not just in numbers but in the life side and the community side. And as we look ahead, we carry with us the lessons learned from our humble beginnings. This would not have been possible without support of each and every [ Shalbyite ] who have always played an important role in this journey. Needless to say, the growth of the company is intrinsically won with the support and contribution of the shareholders and all other stakeholders, each playing crucial role in our journey towards success. The company continued to show steady performance in FY '24 with revenue of INR 953 crores and EBITDA of INR 197 crores, which translates into growth of 15% and 23%, respectively, from last financial year. The acquisition of PK Healthcare hospital marks a significant milestone, bringing our total tally of 16 hospitals in the coming year. We will be operationalizing the Rajkot Hospital and also we can work at landmark Mumbai project once we receive handover from the trust. The implant business has made considerable strides across various aspects, encompassing supply chain, expanding customer base, operational efficiencies and [ alternative management ]. Deepak will provide you a comprehensive overview of development in implant business. Now it gives me immense pleasure to introduce Mr. Deepak Anantha who has joined our group as a Global Chief Business Officer on 9 January '24 and presently, he's in the U.S.A. and will be talking about implant business. He held a Degree in Engineering from Mumbai University and Management Degree from Mumbai Management Institute, and he is an alumni of INSEAD. And he has 2 decades of leadership experience in medical devices, telecom, IT and adtech in a variety of leadership roles. Over to Deepak for further communication, please.

Good morning, good evening, everyone. Thank you so much, sir. And let me just give you a quick brief over our implant business. Our implant business has delivered another consecutive quarter of positive EBITDA in quarter 4 financial year '24 because the growth that we have seen in this quarter, along with continuous improvement that is happening through process improvements in the production shop floor, are securing a much improved procurement prices from our multiple vendors and we're now having a very tight control on our operational expenses. During the fourth quarter of this financial year, our implant business made a significant progress, generating revenue of INR 258 million with contributions from the U.S.A. and India at 41% and 59%, respectively. In quarter 4 financial year '24, our U.S. customer sales mix from retail and wholesale remained at 51% and 49%, respectively. We are actively focused on bolstering our team with skilled professionals, transitioning our sales mix to retail customers from wholesale, enhancing operational capacity and efficiency, expanding our product pipeline through extensive research and development efforts and significantly reducing procurement costs. The reception of our Shalby Consensus implants in our hospitals has been highly positive, and we have received additional orders from the Indonesian market. If you look at the focus for us from the financial year '24, '25, we are looking up into 4 pillars that we have strategized, which we will be focusing on where the Pillar 1 is towards sales. In sales, in the U.S., looking at coming onboard to get an $8 million from the current year, we closed at about $4.8 million. We're looking at getting this by onboarding more distributors, sales teams as well as marketing efforts. We will also be participating this year in a lot of large congresses. We will be initiating a digital marketing campaign in the U.S. in the next 4 to 5 months to come. Inside the sales pillar, outside U.S. sales, we will also be looking for another $8 million through the right products across Southeast Asia; Latin America, we're looking at about 4 to 5 countries in Latin America; Russia, and especially countries where the reimbursements are higher at this juncture, right? We have significantly taken efforts to put CapEx for these particular initiatives on the sales front. Looking at the Pillar 2, which is of the COGS reduction, we are looking to end the year at more than approximately COGS up about 50% to 55%, which is right now upwards of 80% by improving our efficiencies, ship times, new vendors and suppliers and processes. I just wanted everyone to know this is an 8- to 12-month process. From the time you identify a new vendor or a supplier or any efficiency change, the process takes 8 to 12 months, fundamentally, right, from putting the plant across, getting the QMS done, getting the regulatory approval for the new vendor and the new supplier and then going by it. So a lot of initiatives have been taken in this direction, and we will be able to see quarter-on-quarter results starting to come in this space. The third pillar, which is super important for us, and that's also one of the reasons why there have been slight delays in what we had to achieve, was capacity increase and to build a dual supply chain system. Currently, for most of our products, we were dependent on 1 vendor or 1 supplier for the materials. So hence, the cost becomes high as well as the business gets affected because there is only 1 supplier. So the plan is to have a multi-vendor supply system with higher capacity, contributing to our sales forecast as well. And as soon as the higher volume commitment comes in for increasing our sales, we will also be able to lower the COGS as well as increase the capacity. This will also help us to build a business continuity or contingency around not having a single supply chain system but a dual supply chain system. And the last pillar that we want to work on or we will be focusing on is new products. We've also looked at new product initiatives. We've just hired a head of engineering, a very experienced and senior person from the industry of orthopedics, who's come onboard to build our new product initiatives. The new product initiatives, we would be looking at into 3 parts. One, the new product launch that is around the corner, which is CKS Gold, Ambition. TUKS Gold, which we are expecting to launch in this financial year. The second part of the product would be improvement in the current system, just adding a couple of SKUs into our current products, just adding a couple of sizes, improving our instrument sets. There is a huge growth of ambulatory service centers, surgery centers coming up in the U.S. And hence, creating a system to cater to the same, that will help us to cater to the current sales needs. Having said the same thing, even for any of these kind of small improvements, the process is about 6 to 9 months and sometimes, in some cases, even 12 months, right? And the third part of it, from a new product, would be to completely focus on new design, which is a 2- to 3-year project, where we kickstart in terms of looking at revision portfolio for knee, revision portfolio for hip, a remedial knee, a dual mobility, all of them coming into picture, right? So sales growth, COGS going down, capacity being built for driving growth, as well as new products coming into picture, will put us not only for the short term but also in the long term in an excellent spot. That's an update from my side on the Implant front. I would like to hand over the call to Mr. Amit Pathak for company's performance remarks. Thank you, and over to you, Amit.

Thanks, Deepak. Good evening, everyone. I'm pleased to welcome you all to the Shalby Limited Fourth Quarter FY 2024 Earnings Call. Now I will walk you through the financial performance of our company for the fourth quarter of FY '24. Consolidated revenue of INR 249 crores in quarter 4 FY '24 versus INR 208 crores in quarter 4 FY '23, and we have grown by around 20% on Y-o-Y basis. EBITDA of INR 44 crores in quarter 4 FY '24 versus INR 35 crores in quarter 4 FY '23 with a margin of 17.6% in quarter 4 '24 versus 16.7% in quarter 4 '23, and we have grown by around 26% on a Y-o-Y basis. PBT of the company is at around INR 21.8 crores in quarter 4 '24 versus INR 19.2 crores in quarter 4 FY '23 with a margin of 8.7% in quarter 4 of this year versus 9.2% in quarter 4 of the last year, and we have grown by around 13.5% on a Y-o-Y basis. PAT of the company is INR 16.04 crores in quarter 4 FY '24 versus INR 13.9 crores in the last quarter of the same year with a margin of 6.4% in this quarter compared to 6.7% in quarter 4 FY '23, and we have grown by around 16% on a Y-o-Y basis. For an overall year, in FY '24 versus '23, our sales have grown around 15.2% in consolidated level, EBITDA at 23.3%, PBT is 25.7% and PAT is by 23.4% (sic) [ 23.3% ]. On a consolidated basis, the group is maintaining a very strong balance sheet and low gearing ratio at 0.16x, that is derivative of equity of INR 1,000 crores and net debt is INR 156 crores. Now I will be running through the stand-alone performance of the hospital business. The stand-alone revenue is around INR 211 crores in quarter 4 FY '24 versus INR 184 crores in quarter 4 of FY '23 and nearly grew by around 14.5% on a Y-o-Y basis. EBITDA is INR 42.6 crores in quarter 4 of this year versus INR 36.5 crores in quarter 4 of last year with a margin of 20.2% in this quarter versus 19.9% in quarter 4 of the last year, and we have grown by around 16.9% (sic) [ 16.8% ] on a Y-o-Y basis. PBT of the company is INR 32.5 crores in this quarter versus INR 26.5 crores in the quarter 4 of the last year with a margin of 15.4% in this quarter versus 14.4% in the last quarter of the same year (sic) [ in the same quarter of last year ], grew by 22.7% on a Y-o-Y basis. PAT of the company stands at INR 22.6 crores in this quarter versus INR 18.4 crores in the last quarter of the similar year (sic) [ in the similar quarter of the last year ], with a margin of 10.7% in this quarter versus 10% in the same quarter of the last year, and we grew by 22.9% on a Y-o-Y basis. For the full year, the FY '24 versus FY '23, our sales grew by around 17%, EBITDA of 22.8%, PBT by 30% and PAT by 28.5%. Again, at the stand-alone level, we continue to maintain a very strong balance sheet with a positive net cash balance of INR 22 crores. With the operating leverage kicked in and going with an asset-light approach, our stand-alone ROCE grew to 18% in quarter 4 FY '24 on an annualized basis. Further, from 2017 onwards, till date, our stand-alone revenue has grown with a 25% CAGR and EBITDA at 30% CAGR basis. On the operational side, the inpatient, outpatient and surgery count have grown in the range of 15% to 16% on a Y-o-Y basis. ARPOB and ALOS have shown excellent improvement at INR 39,101 and 3.7, respectively, compared to INR 34,867 and 4.01 in the same period of the previous year. ARPOB on a Y-o-Y basis grew by 12%. The number of occupied beds have increased by over 10% on a Y-o-Y basis as is occupancy rate of 46% in quarter 4 of this financial year due to acquisition of Sanar Hospital in NCR region. The payer mix for quarter 4 2024 is at 37% for the self, 41% for the insurance and 22% for the government business. Our NCR strategy for the acquisition of Sanar Hospital has been concluded in quarter 4 2024, with a total investment of INR 206 crores. In this sale, we have acquired the operational hospital, Sanar Hospital, at a value of INR 102 crores for an 87% stake by way of primary and secondary acquisitions and Healers Hospital, which own the land and building on which the Sanar is being operated with 100% acquisition by way of secondary purchase at INR 104 crores. Now from an investment point of view, our CapEx investment for the acquisition for the Delhi/NCR region for Sanar Hospital is concluded, and in future, the CapEx will be incurred for the capacity expansion from the 130 beds to 200 beds in the coming years. Post our acquisition, we have consolidated the performance of Sanar for the part of the year that is from 25th of January, that is the date of acquisition, to 31st of March. The revenue for consolidated period is INR 16 crores with the EBITDA of around negative INR 0.17 crores, that is INR 17 lakhs, in our consolidated results. Revenue from international business remained at INR 13.6 crores, that is INR 2.8 crores from Shalby Hospital and INR 10.8 crores from the Sanar in quarter 4 '24. The overall international revenue from Shalby is at INR 9 crores and the Sanar was INR 67 crores in FY '24. I'm happy to mention that the acquisition of Sanar, our international segment and other new geographies have been increased. And now we have 23 OPDs as a group across the various international locations. I'm really hopeful that this strategic location will help us to increase our international hospital revenues significantly in coming years. At Shalby, our undivided focus has been demonstrating our clinical excellence through successful and many diverse critical surgeries in several of our hospital units. We also take pride in sharing that we have successfully completed 46 transplants, which included 28 kidneys, 12 livers and 6 BMT during the quarter 4 of this financial year. Further, our franchisee business delivered an adequate performance in quarter 4 of this year. The total 393 surgeries has been performed at SOCE units. That is both operated and managed in the quarter 4 of this year. The revenue from FOSO business is at around INR 1.74 crores, grew by 28.5% on a Y-o-Y basis. The revenue from the FOSM business is at INR 0.8 crores, grew by 9.7% on a Y-o-Y basis. We are proud to say that we have generated around INR 6.7 crores of the FOSM revenue and INR 3.6 crores of the FOSM revenue with 48.5% and 32.1% growth, respectively, on the financial year 2024 basis. Our next franchisee location at Rajkot is in satisfactory progress and is expected to get operationalized tentatively in the current quarter. We have been incredibly sensible selecting our choice of potential partners from the many inquiries we are receiving so far for our franchisee operation. To maintain the reputation of our strong brands, we follow a clearly defined process and strict criteria when making this selection. Looking forward, we have a strong sense of optimism about seeing positive development in this upcoming quarter of the fiscal year. Our primary focus remains on utilizing our expertise and excellence in orthopedics, with a goal of establishing more than 40 franchises in India in the next 4 to 5 years. Now for our Homecare business, we have served 30,496 patients in this current year versus 27,000 patients in the last financial year with a growth of 13% patient count in the similar period of the last year. Revenue from Homecare business is at INR 14.5 crores for this current year versus INR 9.8 crores in the last financial year with a 48% growth. And as part of our social commitment, we continue to spread awareness around the importance of health and well-being through videos through various social media platforms and created 90-plus health care videos. We also conducted more than 305-plus health care camps and 145-plus health care talks across all our mix during the last quarter as a part of various community outreach programs. Shalby also takes pride of nurturing young talent through our Shalby Academy vertical with 1,700-plus students registered in the various health care programs during the current year. We would like to inform that Shalby Academy has successfully rolled out BBA-HHM with SVGU University and MBA-HHM with Ganpat University. The new students have been registered for various paramedic courses like lab technician, OT technician and others. Overall 206 enrollments for Team Indore, which is the uppermost in the academy by any single team since the inception. Total paramedics enrollment for this financial year is 313 numbers. Our implant business has delivered a positive effect fourth quarter of current year due to continuous improvement in operational efficiency and better procurement costs. The revenue is at a moderate level of around INR 26 crores in this quarter compared to around INR 34 crores in the quarter 3 of the last financial year. In terms of the CapEx, for the current year, at Shalby level, we have invested close to around INR 28 crores of the CapEx, which includes INR 8 crores in terms of the intangibles, INR 5 crores for the building improvement and another INR 16 crores for the medical equipment. Out of the INR 16 crores of the medical equipment, close to around INR 6 crores was for the upgradation of the medical equipment, INR 7 crores is new equipment and INR 2 crores is the replacement of the equipment. We also like to say that we are going to invest heavily in the CapEx in the next coming years, and we are planning to invest around INR 36 crores of the CapEx for our existing unit in terms of the new and the replacement of the CapEx. Along with that, we are going to install [ 3 unit ] machine at our 3 locations. That will be close to around INR 65 crores. That will contribute highly in terms of the top line and profitability of the company. Now let me hand over the call to the operator to open the floor for the questions.

[Operator Instructions] First question is from the line of Ranodeep Sen from MAS Capital.

Congratulations on a glorious 30 years. My question is to Dr. Vikram Shah. I think one of the business channels did a profiling on you in Jan, and it was incredible to know that you've done 1.5 lakh operations till date and almost 20 to 25 surgeries in a day and 6 days per week. And I think you have done an incredible role in changing the perception about the operation. My question is, sir, how do you institutionalize this in Shalby? I know it's tough to replicate your credential, but is there a way we are trying to institutionalize this in Shalby, which will lead to exponential growth of Shalby and eventually leading to a higher market share?

Thank you for the question. Dr. Shah is in the OT, but he should be back in a couple of minutes and should be able to answer the question. But let me tell you what he has attempted to do and how we have been able to successfully institutionalize it because it's a good question. About 15 years ago, when we started the first corporate multi-specialty hospital, all the surgeries were performed by him and done by him and his close team. As we speak today, only 20% of the arthroplasty surgeries are done by him, and balance 80% are done by the surgeons across all the different hospitals, which we have. So essentially, to that extent, he has been able to successfully institutionalize his practice. And 80% of the patients now come in to get treatment for the knee or hip replacement surgeries at Shalby, right, and not a particular doctor.

Sure, sure. Appreciate that. Shanay, my the next question was on Sanar acquisition. If I'm not wrong, we mentioned that 70% of the top line generated there is from international business and ARPOB is at INR 1 lakh. With these 2 metrics, any specific reason why we had a negative EBITDA for the last quarter?

Sure. So Sanar, if you can see, from the time we have taken the Sanar, it's a good deal for us, okay? The company are into the capital situation, and we are ramping up the business now. There are a lot of spending which is happening into the company, which is on the higher side, and we have started controlling it. You can see the overall performance, the loss was pretty high into the Sanar compared to the time we took over. So we are happy to say that within 2 months, we have just operationalized it in a way that we are at the breakeven. And from the next quarter onwards, we are definitely going to see the positive EBITDA in this company.

Sure. And if I can squeeze in one last question. We had an aspiration for our implant business to grow from INR 100 crores to $100 million. Are we on track for that aspiration?

Absolutely, on track on that. The way I would put it across is it's a $30 billion market globally, and $100 million is still a small number that we can go behind. But we are on track to it on multiple things. At the end of the day, we could only do that if we have the foundation and the fundamentals strong. So like what I mentioned, building the right supply chain system, building the right cost efficiencies, right COGS. Without that, growth at any cost will not make sense. And hence, that's the reason why you see these foundations are being laid out very strongly. And once these foundations we have are in place, we're 100% on track to that.

Aspirationally, which year do we plan to hit that number?

We're looking at about 5 years from now. Is that right, Amit? That's what it is, right? 5 years.

Yes, 5 years from now.

Sure. Wish you all the best on the next financial year.

Thank you.

[Operator Instructions] The next question is from the line of Rohan from [ Anand Rathi ].

Am I audible?

Yes, you are.

Congratulations on a good set of numbers. So I just had a couple of questions. Firstly, you said in the commentary that we had experienced a 12% growth in ARPOB on a Y-o-Y basis. So I just wanted to understand what were the major reasons that led to this growth? Did we take any price hikes? Or was it largely led by volumes?

We should not look at Y-o-Y from the ARPOB perspective because it was a little bit of a case mix. As a little bit of the case mix changes, you can expect the ARPOB to significantly move. But if you see the annual ARPOB difference, the growth has been about 2% to 3%. So it has not been so significant.

All right. And my second was about the Delhi CapEx that you mentioned in the commentary. So we are planning to add around 130 to 200 beds. What will be the amount that we'll be incurring for that particular?

Yes. So at this point of time, our full focus is how to kind of increase the occupancy in the existing 130 beds that we have operational, right? And we are already working on a plan on how to add another 50-odd beds in this hospital. So we are working with consultants, architects and other agencies. But at this point of time, the full focus will be on how to kind of get to a higher occupancy in this existing hospital, which already we are seeing a significant growth over the last 90 days since we've acquired it.

[Operator Instructions] The next question is from the line of Bino Pathiparampil from Elara Securities.

Just a question on Nashik and Mumbai Santacruz projects. What's the latest update there? And what are the time lines looking like?

Yes. Sorry, I didn't get the second part of the question.

Time lines. What's the current status? And what are the time lines?

So I think what has happened is there has been a delay in the project because of the Trust thing. And they are, at this point of time, working internally and they need certain documentations done, including taking the approvals from the necessary authorities. So they are in the process of that. And we are expecting that in the next couple of months, we should be able to get the approvals. And once the approval is done, the handover will be given to us. And then from that point of time, we will be in charge, and we will have to kind of get the BMC approvals and start working on the project.

Understood. So maybe you can say it would start around 1 year from now, maybe another 2 years of construction, so maybe 3 years before we have a full-fledged facility. Is that right?

Yes. So based on the last discussion with the trust authorities, we were told that the approval should be in place in the next 2-odd months. So if that is the case, then things can start a lot earlier as well.

Understood. And Nashik?

Well, Nashik is another project. However, there, we were supposed to get the handover for the hospital, which was to be constructed by them, and they were going to then hand it over to us, which has still not happened. So we have written to them at this point of time to kind of confirm when they will be able to deliver and hand over the project to us. So we have not heard from them yet. But as such, there is no capital employed over there from Shalby Limited, so from that perspective, we are okay.

Understood. And what will be the total CapEx in FY '25?

So I did mention we are looking forward for the Shalby, and we are talking about we are going to invest close to around INR 36 crores for our hospital business. And apart from that, we are going to invest about INR 60 crores to INR 65 crores for 3 units at 3 locations.

Understood, yes. And one last question on tax rate. So we are running at the consol level of around 34%, 35% tax rate. What will be the consol tax rate outlook over the next 2, 3 years?